The Pioneer Institute recently released a study raising concern over the lack of transparency around the role pharmacy benefit managers (PBMs) play in serving patients. According to the study, a lack of competition, transparency, and oversight together make it difficult to understand who actually receives the benefits – are the savings passed on to patients or are they boosting the profits of the PBM “at the expense of patients, employers, and government entities”?
PBMs establish lists of drugs that are made available to those enrolled in a particular health plan, but how those lists are generated is not clear. In determining whether a manufacturer receives preferred placement on the list – or formulary – PBMs ask manufacturers what rebates, fees, and concessions the manufacturer is willing to pay. Certain factors like low out-of-pocket costs for the patients and limited paperwork requirements for providers tend to make certain medications more appealing to the PBMs.
PBMs may also include certain requirements that patients “fail” on a cheaper prescription before they can be given the medication a provider prescribed. In other circumstances, the PBM may require that a provider complete a prior authorization form before the prescription can be filled.
Concentration in the PBM market has led to less competition and higher profits. In 2004, the top three PBMs served 190 million people and managed 52% of prescription drug claims. Now, the three largest PBMs (CVS Caremark, Express Scripts and Optum) manage 79% of drug claims for around 270 million people. Additionally, revenue for the four largest PBMs has doubled in the last eight years to more than $1 trillion – roughly 22% of national health expenditures.
“The structure and amount of the rebates PBMs negotiate are hidden from patients, employers and government entities,” said Dr. William Smith, co-author of the study with Dr. Robert Popovian. “It’s unclear how much the concessions PBMs negotiate help patients and how much they help themselves and other healthcare players.”
“One fundamental problem is that currently, PBMs are incentivized to favor medications with high list prices and larger rebates over lower-priced alternatives,” Dr. Popovian said. “These misplaced incentives can skew coverage toward higher-priced brand-name drugs.”
As Congress is expected to take up PBM reform this year, Dr. Smith and Dr. Popovian recommend ensuring that PBM savings benefit patients and health care payers like by: requiring PBMs disclose rebates, fees, and concessions; eliminating incentives that favor higher-priced medications; prohibiting spread pricing; and enforcing antitrust laws to promote competition in the PBM market. Dr. Smith and Dr. Popovian recommend that interested patients and advocates work together to advocate for increased transparency in PBM practices and challenge the high out-of-pocket costs through petitions or engagement with members of Congress and to call on health care providers and insurers to prioritize PBMs that enhance access to cost-effective generics and biosimilars.